EU Microsoft ruling could have greater effect than in US, say observers

Legal analysts, industry insiders and parties involved in the five-year-long European Union antitrust case against Microsoft agree that the remedies set could have more of an impact on the software company's business than remedies handed down in the US government's case.

The European Commission fined Microsoft £331m yesterday and required the company to offer a version of its Windows operating system without the Windows Media Player software within 90 days.

The Commission also ordered Microsoft to disclose within 120 days details of interfaces used by its products to communicate with Windows. The ruling does not require Microsoft to reveal its source code, however.

EU competition commissioner Mario Monti said the ruling sets a precedent for other cases.

"The commission is not prohibiting bundling per se," he noted. "Each case will be judged on its own merits. But today's decision has provided a framework that will allow the commission to deal with future complaints in a quick and efficient manner."

Microsoft will ask the European Court of First Instance to review the decision and stay or suspend the sanctions, particularly the order to create a second version of Windows. The appeals processes could take until 2009 to resolve.

Microsoft senior vice president and general counsel Brad Smith said that removing Media Player from the operating system would break some aspects of Windows' operability, and will affect many websites that have been developed with code using the player.

Meanwhile, chief executive officer Steve Ballmer kept the door open for further discussions.

"We hope at some point to resume discussions and resume resolutions of issues," he said. "Every company should have the ability to improve products to meet the needs of consumers."

Smith said the commission ruling was an unnecessary step.

"The US government spent five years addressing these issues. It's sad that when the day came and went, we just moved across the Atlantic to have another day in court."

However, competitors and many legal analysts in the US said that the settlement reached in the US antitrust case, joined by several states, has had little effect.

The US settlement was approved in 2002, although Massachusetts is still appealing against it, claiming that Microsoft of charging excessive prices for software protocols.

The remedies in the case, among other things, prohibit Microsoft from retaliating against computer makers or independent software makers that develop or distribute any software that competes with Microsoft "platform software" or "middleware".

Middleware products were defined as software for browsing the web, for instant messaging and for playing music and video files, as well as other products.

Microsoft was required to allow manufacturers to hide user interface buttons and other links to middleware functions to make it easier to use third-party middlware. The settlement also forced Microsoft to share operating system protocols with developers.

"The consent decree appears not to be working," said Herbert Hovenkamp, a professor at the University of Iowa College of Law. "Microsoft market share has not come down at all. The remedy in the US hasn't had any significant effect."

However, the EU case, while not necessarily having any direct impact on Microsoft business practice in the US, may make it more difficult for the company to continue its practice of bundling new applications into the operating system.

"The EU case potentially has some powerful impact," said Mark Schechter, chairman of the government antitrust practice group at law firm Howrey Simon Arnold & White in Washington DC.

"It's fair to say that Microsoft's business model has been to incorporate applications into the OS. That's going to be more difficult for them to do following the EC's decision."

"For the first time in five years, PC makers will have the opportunity to distribute a PC with a choice of media player. They'll be able to read consumer demand and meet that demand," said Dave Stewart, deputy general counsel of RealNetworks.

Sun Micrososystems' 1998 complaint sparked the European case. "We expect to see at least portions of this have impact in the United States," said Sun vice president of legal affairs Lee Patch.

"First of all, the commission ... articulated clearly that it is full interoperability that is required. The DOJ never defined the level or degree of interoperability. The commission explicitly required that server-to-server exchanges be included to fully accomplish interoperability."

Patch added that although it would be hard to tell what precisely the effect of the commission ruling will be in the US since it is legally valid for the EU market only, the result of the ruling's requirement could enhance interoperability among products for multinational companies.

"We don't know everything. We know what the market will require for it be effective. If you're a global enterprise, how do you buy one set of products for one area and one set for a different area and realise that the products won't talk to each other?"

The Computer & Communications Industry Association (CCIA), which lodged a separate complaint last year in the EU, applauded the commission ruling, but said that Microsoft business practices continue to stifle competition on a variety of fronts.

"The decision we believe is an extremely important one. We believe it will make a significant positive impact on competition and innovation in some very important areas of the market," said Ed Black, president and chief executive officer of the CCIA.

"At the same time, we do want to point out that it is only a decision which addresses certain parts of the technology world which are threatened by Microsoft's anticompetitive behaviour."

Several separate antitrust inquiries in Europe are already under way. A complaint in February 2003 by the CCIA led to an EU inquiry into whether Microsoft is using the Windows XP operating system to dominate new markets. The CCIA accuses Microsoft of unfairly using Windows to compete in areas including software for e-mail, instant messaging and audio and video streaming and playback by bundling software with Windows XP.

In another inquiry, the commission has also been talking to manufacturers about Microsoft's licensing policies, in response to companies that have expressed concern about certain conditions that Microsoft attaches to Windows licensing.

Whether yesterday's ruling does set a precedent for these and other complaints depends on whether it is overturned on appeal, but some analysts think that the commission has been careful to get broad agreement from European officials.

"Not only has the commission ruled, but received concurrence of national authorities," Schechter said. "The prospect that this gets flipped is remote."

Additional reporting by Peter Sayer in Paris and Gillian Law in London

The enterprise view

The EU decision is, potentially, important to enterprise customers because of what it says about server-to-server interoperability.

The US antitrust settlement with Microsoft required the company to broaden its disclosure of desktop protocols to other server suppliers. But the Europeans called for "full interoperability" of non-Microsoft servers with Windows PCs, as well as servers.

Details about the European Commission’s decision - including the specific requirements stating how far Microsoft must go - will not be available for weeks. Microsoft will soon get a copy of what is expected to be a lengthy decision and will have the opportunity to recommend removal of competitive and sensitive information before it is released.

"The server piece has some potential, once we know what it is," said Gartner analyst David Smith. "But I’m not optimistic - given history, how hard it is, how complicated it is."

Microsoft’s chief legal counsel, Brad Smith, said that the commission’s requirement was similar to "saying to a newspaper that you’ve got to make your articles available to run (in other newspapers) even though you know that those newspapers are going to be sold in competition with your own".

Critics have contended that Microsoft preserves certain functionality between its servers and its desktop that’s not available to Unix- or Linux-based servers, for instance. In that case, Microsoft servers may be able to offer single sign-on to a mixed environment, a technology feature that other suppliers could supply but have trouble implementing if they do not know the Windows server protocols.

Illuminata analyst Gordon Haff said much of Microsoft’s software, like its Active Directory, is designed under the assumption that it is running in a pure Windows environment.

"Microsoft software taken as a whole is much more monolithic than is typically the case in the Linux and Unix world," he added.

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